Exclusives Help Penney's Profits Rise

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    NEWSLETTERS

    TK
    ASSOCIATED PRESS
    In this photo made Wednesday, July 15, 2009, pedestrians walk past the new JC Penney flagship store at Manhattan Mall in New York. Penney's, which expects the store to be its largest sales generator, believes even New York fashionistas are looking for affordable options as the recession maintains its grip.

    J.C. Penney reported Friday that its earnings rose 63 percent in the third quarter, as the department store chain says it saw strong reception to new exclusive brands such as Liz Claiborne and MNG by Mango.

    But the company's gross profit margin slipped as the chain had to aggressively discount, sending shares down almost 2 percent. Shares slipped 65 cents to $31.56 in morning trading.

    The company also offered a solid profit outlook for the holiday quarter, though it acknowledged it will be heavily competitive. The company us pushing free shipping on orders of $69 and other come-ons. Like everyone else, Penney aims to steal customers from rivals at a time when overall spending still remains sluggish.

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    The department store chain said its net income was $44 million, or 19 cents per share, in the quarter ended Oct. 30. That compares with $27 million, or 11 cents per share, in the year-ago period.

    Gross profit margin slipped to 39 percent from 40.6 percent in the quarter, due to its heavy discounting as well as the discontinuation of its big catalogue.

    Revenue reached $4.19 billion, up from $4.18 billion in the same period last year. Revenue at stores opened at least a year rose 1.9 percent. The measure is a key indicator of a retailer's health.

    Analysts surveyed by Thomson Reuters expected profit of 17 cents per share on revenue of $4.25 billion for the period.

    "We planned for our new merchandising initiatives to begin to take hold in the second half, and it's playing out this way," Myron E. Ullman III, chairman and CEO, said in a statement. "We have seen clear signs of strength in key businesses, and our Sephora inside J.C. Penney concept continues to surpass our expectations."

    Ullman added that the company's strength in sourcing has allowed the company to "offer very sharp price points and to flow inventory into our stores in a way that reflects the ongoing trend of customer's buying closer to need." Ullman noted to investors during a conference call that sales so far in November have been strong, helped by the arrival of cold weather.

    He added, however, that retailing will remain "highly promotional" and consequently it has planned a "robust calendar" of events to make Penney stand out. Mike Boylson, Penney's chief marketing officer, noted the early morning specials on the day after Thanksgiving will be more expansive than last year.

    Penney is adding small temporary Sephora boutiques in more than 200 stores that don't already have them for the holiday season.

    Department stores, hard hit by the Great Recesssion, have focused on expanding their exclusive items and working with suppliers to offer better prices.

    This past fall, Penney became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear, except the Isaac Mizrahi-designed Liz Claiborne New York brand, which went to QVC.

    Also this fall, Penney became the only department store selling MNG by Mango, a European clothing brand, a big coup as fast-fashion players have been a big threat to department stores.

    Meanwhile, Penney announced Thursday it plans to collaborate with Hearst Magazines on two new online ventures as it starts a new unit devoted to finding new revenue streams.

    J.C. Penney and Hearst will be partners on a site called Gifting Grace, targeted at gifts for women ages 30 to 54, and Clad, which will offer designer menswear for men ages 25 to 54.

    The sites are scheduled to begin operation next summer. They will be supported by magazine and online ads in Hearst publications such as Good Housekeeping, Redbook and Esquire.

    The sites are the first two projects from J.C. Penney's new growth brands division. J.C. Penney, based in Plano, Texas, said the unit will be devoted to finding "high potential opportunities in the retail sector."

    Penney said for the fourth quarter it expects to earn in the range of 90 cents to $1 per share. Analysts had projected 94 cents. Revenue at stores open at least a year should be up anywhere from 3 percent to 4 percent.

    Last month, activist investor William Ackman said his Pershing Square Management had taken a nearly 17 percent stake in J.C. Penney. Ackman has agitated for major changes at retailers he holds stakes in, such as Borders Group Inc. and Target Corp.

    For the year, Penney continues to expect revenue at stores open at least a year to be up in the low single digits and earnings to be in the range of $1.40 to $1.50 per share. Analysts had expected $1.43 per share.